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VAT Rates in India
VAT or Value Added Tax is a tax added to the goods at each step of the production and distribution process. VAT tax however is ultimately paid by the end consumer, as dealers are allowed to collect VAT tax on their sales, retain the tax paid on their purchases and only pay the balance to the Government. Unlike service tax, VAT is still governed by the State Government by separate VAT act passed by each of the state in India under the guidelines issued by an Empowered Committee to ensure uniformity. Therefore, the procedure for VAT Registration, the VAT Rates, due date for VAT payment, deadline for VAT Return Filing and other modalities differ from State to State. In this article, we look at the VAT Rates prevalent in some of the major states in India and the relevant schedules:
VAT Rates in India
The VAT Rates in India will differ based on the type of goods and from State to State. Therefore, it is important for the Entrepreneur to be conversant with the State’s regulation with respect to VAT. However, VAT Rates in India can be divided into three main categories, which are common for many states:
VAT Exempted Category / NIL VAT Rate
In many states, items that are sold by the unorganized sector in natural or unprocessed format and basic goods for the poor are listed under the VAT exempted category. Some of the items that may be VAT exempt in many state include: aids used by handicapped persons, glass or plastic bangles, condoms, firewood, khadi, salt, etc.,
1% VAT Rate
In many states, 1% or 2% VAT Rate is applied for precious stones, precious metals like silver, gold and platinum, bullions, jewellery, etc.,
4% or 5% VAT Rate
Many states have adopted a VAT Rate of 4% or 5% for a large number of basic necessity goods. Some of the goods included in this category in many of the States include coffee, coir, cotton, edible oils, medicines, drugs, agricultural implements, etc.,
General VAT Rate
In addition to the above VAT Rates, many states also have other levels of VAT based on the Goods. Very high VAT Rate of over 20% is usually levied for goods such as imported liquor, cigarettes, etc., Many states also have a General VAT Rate of around 12.5% which is meant as a catch-all for goods not falling in any of the listed category. This category of goods not falling in any of the other category are usually taxed at 12.5% or 13.5% or 14% depending on the State.
VAT Rates in India by State
The following are the prevalent VAT Rates in some of the major States of India:
As VAT rates change based on the State and the goods being sold, it is important for the dealer to be fully aware of the relevant VAT Rates for the goods or products sold by the dealer and comply with the relevant regulations.
What is service tax in india?
What is Service Tax?
It is a tax which is payable on services provided by the service provider. This tax is payable by the provider of service to the Government of India. However, the service provider can collect this tax from the consumer (recipient of service) and deposit the same with the government. This tax came into effect in 1994 and was introduced by the then finance minister Dr. Manmohan Singh. It is charged on all services except the services in the negative list of services and services exempted through notifications issued by Central Board of Excise and Customs.
Service tax has become a huge source of revenue for the government of India since its inception. The revenue obtained from service tax in the year 2014 was around Rs. 1,50,000 crores whereas same was Rs. 407 crores in the year 1994.
The present rate of service tax is 14.5% (effective). The split is as follows:
Service Tax = 14%
+ Swachh Bharat cess = 0.5%
Effective Service Tax rate =14.5%
Union Minister Arun Jaitley in his maiden full budget (presented on 28th February) announced the hike in service tax to flat 14%. Education cess was subsumed in this new rate i.e. 14%. Additionally, the minister announced 0.5% Swachh Bharat cess with effective from 15th
November 2015. So as compared to earlier service tax rate i.e. 12.36%, there is effective hike of 2.14% in service tax rate. One more thing is that Swachh Bharat cess is to be shown separately in the invoice i.e. 14.5% cannot be shown directly in the invoice. 14% for service tax and 0.5% for Swachh Bharat cess are to be shown separately. The Swachh Bharat cess will not be available as CENVAT credit and even CENVAT credit can not be utilized to pay Swachh Bharat cess.
In the Indian tax structure, there are a lot of taxes that people pay for different reasons. Income tax, sales tax, entertainment tax, value added tax etc. All these taxes are existent because in some way or the other it impacts and helps the economy. One such tax that is prevalent in any manufacturing sector is the excise duty.
What is excise duty?
An excise or excise tax (sometimes called an excise duty) is a type of tax charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of a good. This tax is now known as the Central Value Added Tax (CENVAT).
Though the collection of tax is to augment as much revenue as possible to the government to provide public services, over the years it has been used as an instrument of fiscal policy to stimulate economic growth. Thus it is one of the socio-economic objectives.
What are the types of excise duty?
There are three different types of central excise duties which exist in India which are as follows:
Basic – Excise Duty, imposed under section 3 of the ‘Central Excises and Salt Act’ of 1944 on all excisable goods other than salt produced or manufactured in India, at the rates set forth in the schedule to the Central Excise tariff Act, 1985, falls under the category of basic excise duty in India.
Additional – Section 3 of the ‘Additional Duties of Excise Act’ of 1957 permits the charge and collection of excise duty in respect of the goods as listed in the schedule of this act. This tax is shared between the central and state governments and charged instead of sales tax.
Special – According to Section 37 of the Finance Act, 1978, Special Excise Duty is levied on all excisable goods that come under taxation, in line with the Basic Excise Duty under the Central Excises and Salt Act of 1944.
Therefore, each year the Finance Act spells out that whether the Special Excise Duty shall or shall not be charged, and eventually collected during the relevant financial year.
Which goods are excisable goods?
The term ‘excisable goods’ means the goods which are specified in the first schedule and the second schedule to the Central Excise Tariff Act, 1985, as being subject to a duty of excise and includes salt.
Who is liable to pay excise duty?
The liability to pay tax excise duty is always on the manufacturer or producer of goods. There are three types of parties who can be considered as manufacturers:
Is it mandatory to pay duty on all goods manufactured?
Yes, it is mandatory to pay duty on all goods manufactured, unless exempted. For example, duty is not payable on the goods exported out of India. Similarly exemption from payment of duty is available, based on conditions such as kind of raw materials used, value of turnover (clearances) in a financial year, type of process employed etc.
What is the consequence of evading payment of excise duty?
Under the different sections of the central excise act, the fines for evading tax can range from twenty-five to fifty per cent of the amount of duty evaded. When you look at the amount of excise you may have to pay, this is a rather large amount and along with the financial repercussions, you also have to encounter a tarnished image.
